Why The Canadian Government Wouldn't Block A RIM Takeover

Investors have been praying that an outside company will step in to catch the falling knife known as Research In Motion. But last week an influential publication threw cold water on those hopes, citing high hurdles to any potential takeover of the fading BlackBerry-maker.

The report was astute in most respects. But it was wrong in suggesting that a RIM (NSDQ: RIMM) takeover would meet stiff interference from the Government of Canada.

In a December 28 article, the New York Times’ Dealbook reported that RIM’s share price had recently spiked amidst takeover rumors but that investors should be realistic about the obstacles to a sale. Dealbook perceived one of the chief obstacles as follows:

RIM is also a point of pride for the Canadian government, which has been increasingly reluctant to let foreign companies buy major domestic corporations.

Other publications reporting on a possible RIM takeover have since repeated that Canada might block a sale.

This speculation is unfounded. While the Canadian government can screen large transactions to ensure they are a “net benefit” to the country, it has used this power exactly twice since 1985.

The notion that the government has become more protectionist is based in Canada’s decision to block an Australian mining giant from taking over the country’s main potash producer in 2010. That unusual decision was driven, however, by pressure from a regional government and political ally looking to preserve tax revenue.

There are no similar circumstances surrounding Research In Motion. Dealbook’s contention that RIM is a “point of pride” is true but only to the extent that Canadians have long cited BlackBerry to promote the fantasy that Canada is a global center of innovation.

Overall, the fact remains that Canada’s current government is ideologically in favor of free markets and would almost certainly allow RIM to be sold. Canadians might gasp but no more than they did when other national icons like Tim Hortons or the Montreal Canadiens hockey team were acquired by American interests.

According to Stephen Scott, a professional investor and constitutional law expert at McGill University:

“My own guess is that sale of the whole of a crashing corporation (or sale of its assets) would not be blocked by the Government of Canada in the same way as has been (or would be) a rising enterprise. For one thing, too much pressure by desperate shareholders, who would be certain to go ballistic if blocked when trying to recover some of their investments.”

Dealbook cites real obstacles to the prayed-for sale of RIM, including the high price tag and the obstinance of its co-CEO’s. But political interference from Canada should be far from top of this list.

Other forms of help may be on the way, however. Sources are reporting today that a management shake-up at the Waterloo, Ontario company may be on the way.